Back-door debt restructuring on the cards for Greece...certainly of interest to ireland

LEIGH PHILLIPS

31.01.2011 @ 09:42 CET

EUOBSERVER / BRUSSELS - Behind-the-scenes discussions are currently taking place between Greece and the EU and the IMF to cobble together a three-stage debt restructuring plan, an emergency manoeurvre in order to prevent the country from defaulting.

According to a new scenario, Athens would first borrow some €50 billion from the eurozone rescue mechanism, the European Financial Stability Fund.

The government would use the cash to buy by Greek bonds currently held by private investors at around three quarters of their face value.

On secondary markets, the value of Greek bonds have slid to around 70 percent of their nominal price, so if bondholders were interested in getting out of the game now - taking out what cash they can - Athens would be able to wipe out an estimated 15-20 percent of its €330 billion debt.

Crucially, this would enable a partial restructuring of the country's debt, but with bondholders doing so voluntarily, rather than a formal restructuring enforced upon all creditors.

Alongside this back-door restructuring, bail-out cash to Greece from the EU and IMF - the €110 billion package announced last May - would have its maturity extended to 30 years and the interest rate paid reduced from the current 5.5 percent.

However, in return, the government would have to impose yet further austerity.

The three-year austerity programme imposed by the troika of the EU, IMF and European Central Bank would have to be extended indefinitely and Athens could be required to adopt a constitutional amendment enforcing budget discipline and limiting deficits.

The proposals were discussed on the fringes of the World Economic Forum in Davos, Switzerland, where Greek finance minister George Papaconstantinou said there had been talks, Reuters reports.

However, European Commission economy spokesman Amadeu Altafaj said that while various schemes are "on the table", he subsequently denied any three-stage plan was in play.

"We are not discussing any plan whatsoever for Greece, neither to buy back its own bonds nor to restructure its debt," he said, according to Agence France Presse.

The development comes as troika monitors descend upon Greece again this week. Officials are there to assess the government's progress with its austerity measures before giving the green light to a third tranche of bail-out aid, some €15 billion.